What’s in the proposed 2-year CT budget? A lot of uncertainty and very little room to spare

Hartford Courant – Monday, February 10, 2025
By Christopher Keating

Lamont, Senate President Pro Tempore Martin Looney of New Haven and House Speaker Matt Ritter of Hartford all say that the state might have to dip into the rainy day fund, which has grown to $4 billion because of budget surpluses in recent years. The state is in far better fiscal condition than it was 15 years ago, but the future is still uncertain.

“Are we prepared? Yes,” Ritter said. “Could we handle minor reductions? Yeah. Can we handle utter chaos and destruction? No. … If we get cut by billions and billions, we’ll be in the same spot as any other well-run state. It’s going to be problematic.”

Tax cuts and tax hikes

Cutting taxes is a traditionally popular idea among voters, and Lamont and state legislators want to cut taxes whenever possible. With the state running up surpluses in recent years as Connecticut has returned to solid financial footing, the chances of a tax cut are high, lawmakers said.

But the precise form of the tax cuts remains to be seen. Lamont is seeking $85 million in tax relief in each of the next two years by increasing the maximum property tax credit on the state income tax to $350, up from the current $300 per tax filer. The credit has been on the books for decades, but the amount has gone up and down during the tenure of the past four governors. The maximum credit would be available for couples earning up to $100,000 per year, an expansion over the current level of $70,000 per year. The cut would help 800,000 tax filers in the state, and 90% of the benefits would got to filers earning $125,000 or less.

A key player in the debate is Ritter, a Hartford Democrat who has called for making highly visible tax relief that could come in the form of direct payments. He said recently that consumers do not notice that they received the property tax credit from the state government because their accountant simply filled in a box on the state income tax form. As such, Ritter did not immediately embrace Lamont’s idea.

“Is it the property tax credit or some other credit? I don’t know,” Ritter said when asked by The Courant. “We’ll look at it. I don’t know how targeted it is. We’ll see.”

Republicans ripped the idea, saying that a credit of $50 would not have much impact on a family of four that is trying to pay the bills.

“The bottom line is there is nothing here for the taxpayers,” House Republican leader Vincent Candelora said when asked by The Courant.

“There’s nothing here to fix energy costs, to fix public safety. … That $50 — people might be able to buy a cheeseburger with the tax relief that’s being given.”

Senate Republican leader Stephen Harding of Brookfield agreed, saying that corporations and hospitals would pay more under Lamont’s plan while some individuals would pay slightly less.

“Basically, I’m going to raise your taxes [on businesses] and give up a $50 property tax break, so go take it and enjoy it,” Harding said. “C’mon. I think it’s obscene. When you net out the tax increases versus the small amount of tax decreases, this is a tax-increase budget. … The fiscally moderate Ned Lamont has officially left the building, folks, and it’s really sad to see.”

Major, multi-state corporations that would be paying more taxes under Lamont’s proposed changes in the state’s “unitary” tax reporting system would include Electric Boat, Raytheon, Amazon, Home Depot, Lowe’s, AT&T, Verizon, and the parent company of Sikorsky helicopters, officials said. Amazon is now the fifth-largest employer in the state, and the unitary tax would hit about 20 major corporations, lawmakers said.

Lamont’s budget director, Jeffrey Beckham, said the 800,000 taxpayers who would see relief is “enormous,” while ”the number of taxpayers who are inconvenienced is quite small.”

When Sen. Ryan Fazio of Greenwich asked Beckham during a finance committee meeting Friday if he is concerned about potential job losses due to the business tax increases, Beckham said Lamont moved forward with the proposed increase under “the assumption that there was low risk of what you described.”

An idea that lawmakers said has the best chance, based on support from Lamont, Democrats, and Republicans, is eliminating licensing fees for certain professions for a variety of workers.

The proposal would reach nearly 180,000 employees who work as teachers, nurses, paramedics, physical and occupational therapists, dental hygienists, plumbers, and electricians, among others. Their fees currently range from $50 to $375 every year. The largest category is about 100,000 workers in nursing, including advanced practice registered nurses, licensed practical nurses, and nurse midwives.

Collectively, the workers would save $25 million in the second year of the two-year budget as Lamont seeks to jump-start employment in education and health care. Other professions, like attorneys, would continue paying their occupational fees.

The complicated, multi-tiered system for teachers would be reduced in the next fiscal year to two tiers, at $200 and $375, that would be valid for 10 years each, officials said.

Medicaid at hospitals

Even before Lamont delivered his annual budget address in the historic Hall of the House, the state’s hospital association was blasting his budget regarding the controversial hospital tax that caused bitter clashes dating back to the Malloy era.

“The governor’s budget increases the taxes paid by hospitals, reduces their reimbursements for providing care, and hurts patients, while doing nothing to address the $1.4 billion annual Medicaid shortfall, increase access, or define a long-term vision for healthcare,” said Jennifer Jackson, the association’s president. “We ask Governor Lamont to reconsider these proposals and work with us to build a budget that protects patients, supports care delivery and the healthcare workforce, and plans for Connecticut’s future.”

But a state report that was released Friday features a new methodology for the state to calculate Medicaid payments, which hospitals have consistently complained for years are far too low. In a surprise, the state now says that Medicaid reimburses 87% of the costs for hospital patient care — far above the often-cited level of 62%.

“When accounting for all of the Medicaid payments, appropriately attributing the state’s hospital user fee portion of the user fee, and counting only Medicaid costs directly related to patient care, the state actually pays hospitals 87 cents on the dollar for care provided to individuals with Medicaid insurance,” said Dr. Deidre S. Gifford, the state health commissioner. “Is this enough? It’s certainly in line with what other states pay, and also in line with our estimate for what Medicare pays. There is time to talk about reasonable Medicaid rates, and where the state’s limited Medicaid dollars are most needed. But let’s have a conversation based on the best facts, not on outdated measures that don’t paint the true picture.”

Hospital supporters argue that nothing has changed, other than a recalculation of the numbers as Medicaid payments still come up short.

“We are deeply troubled by changes to OHS’s methodology for calculating payment-to-cost coverage, which, by disregarding the full value of the taxes hospitals pay to support the Medicaid program, are designed to make Medicaid underpayment appear far less than it is in reality,” the association said. “Changing the math does not change the problem. Medicaid underpayment must be addressed if we are serious about tackling healthcare affordability.”

Some lawmakers recalled the days when the hospitals were locked in litigation with Malloy, who repeatedly criticized the hospitals as the state publicly released a list of the high salaries and benefits of top hospital executives who are paid more than $1 million per year. The hospital association, which lobbies at the Capitol, has 11 employees earning $250,000 or more.

Malloy asked, “If they are hurting so bad, why are they paying their chief executives $3.5 million?”

Malloy also said that many hospitals were flush with cash – even when they said they were not.

“If you make almost $1 billion a year, how bad are things?” Malloy asked at the time. “If you are having the best results in recent history in hospital performance, why do you need the citizens of Connecticut to give you an additional $500 million?”

State money was held back at times from the hospitals in 2015 as the jousting went back and forth. At one point, millions were sent to small, community hospitals at the same time that Malloy was criticizing the larger, well-funded hospital networks. The hospitals responded with a major campaign that included extensive television commercials that complained about cuts.

Gov. Dannel P. Malloy and Ben Barnes, secretary of the state Office of Policy and Management, clashed with Connecticut hospitals during their tenure in office.

Some veteran lawmakers and lobbyists still remember a well-known clash in February 2015 that personified the political and personal battles between the Malloy administration and the hospitals. During a public hearing in front of the tax-writing finance committee, then-state Sen. L. Scott Frantz of Greenwich told Malloy’s budget chief, Benjamin Barnes, that he could not understand why hospitals were being asked to pay more in taxes.

Barnes responded, “Why do you rob banks? That’s where the money is.”

“That’s on the record, sir,” Frantz responded.

Today, lawmakers do not want a return to that contentious atmosphere.

“I’ve been here when we’ve had bad relations with the hospitals,” Ritter said when asked by The Courant. “That’s a tough thing. They employ a lot of people. … I have no desire to see that relationship upended. … They keep as many people in the state as Geno Auriemma does from going to Florida in the winter. We have great health care in Connecticut. The hospital wars, I call them. It was really bad. They employ tens of thousands of people, and they’re good jobs — so you can’t outsource them. I don’t really want to pick a fight with them, but they also have to explain themselves and what they don’t like about the governor’s proposal, and we’ll go from there.”

Not enough

Although Lamont called for spending $27 billion next year in a small state of about 3.6 million people, a series of groups complained that it is not enough.

Nonprofits, teachers, and local mayors and first selectmen all will be lobbying the legislature in the coming weeks and months to receive more money for their needs.

The groups have been calling for more money for years, but the state is bound by a spending cap enacted in 2017 as part of the fiscal guardrails.

The Connecticut Conference of Municipalities has been seeking more money for decades as critics have called the group the “Conference of Complaining Mayors” at the state Capitol.

“Our cities and towns deserve better,” Joe DeLong, CCM’s chief executive officer, said after Lamont’s speech. “After boasting seven years of budget surpluses at the state level, the state’s ongoing neglect not only undermines the quality of life in our neighborhoods, but forces local leaders into making impossible budgetary decisions that sacrifice critical services and long-term community investments.”

Joe DeLong, the executive director of the Connecticut Conference of Municipalities, is seeking more money from the state budget.

But Beckham, Lamont’s budget director, highlighted the lack of reductions for cities and towns during an hour-long briefing on the budget to reporters.

“No cuts to muni aid,” Beckham announced during a power point presentation. “No impact on what towns are getting or due.”

Lamont recently told mayors and first selectmen that he earmarked state money for local infrastructure projects.

“For each and every one of you, we doubled Town Aid Road (grants) last year from $30 million to $60 million,” Lamont told nearly 300 local officials. “We’re doing everything we can to fight for our small towns. Sometimes you get a little forgotten up there at the legislature. … I want to protect our small towns.”

The municipalities will collectively receive $3.2 billion in each of the next two years, including $2.4 billion in the all-important educational cost sharing funds that they seek annually at the Capitol. The most money will go to Hartford at $338 million annually, followed by New Haven at $307 million, and Bridgeport at $264 million. Smaller towns like Avon, Andover, Chester, Cornwall, Easton, Essex, Goshen, Guilford, Kent, Lyme, Middlefield, and Old Saybrook will all receive less than $3 million each in total formula grants, according to Lamont’s two-year budget.

Looming over the fiscal deliberations is the uncertainty about what Trump and the Republican-controlled Congress will do regarding federal funding.

House Majority Leader Jason Rojas of East Hartford and other lawmakers said flatly that they cannot plan for any federal cuts because they do not know how large they might be.

“We can only react to clarity,” Rojas said. “There has been a lot of action taken, but not a whole lot of clarity behind it. It remains to be seen how we can react until we know what we’re actually dealing with.”

The problem, he said, is that Trump has issued so many executive orders so quickly that lawmakers have trouble making sense of them or whether they will take effect; Multiple lawsuits blocking the orders have been filed in the past three weeks.

“That’s the goal,” Rojas said. “The goal is flood the zone and confuse everybody. It’s not just

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